EXHIBIT II
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OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of 16 October,
1996 (the "Agreement"), is executed in reliance upon the exemption from
registration afforded by Regulation S ("Regulation S") as promulgated by the
Securities and Exchange Commission ("SEC"), under the Securities Act of 1933,
as amended. Capitalized terms used herein and not defined shall have the
meanings given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in connection
with the private placement of 8.0% Convertible Debentures of Chantal
Pharmaceutical Corporation, a corporation organized under the laws of Delaware,
with its principal executive offices located at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (hereinafter referred to as "Seller"). Buyer hereby
represents and warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN
REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
1. Agreement To Subscribe; Purchase Price.
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(a) Subscription. The undersigned Buyer hereby subscribes for
and agrees to purchase the Sellers 8.0% Convertible Debentures substantially in
the form of the Debentures attached as Exhibit A hereto and having an aggregate
original principal amount of U.S. $5,000,000 (singly, a "Debenture," and
collectively, the "Debentures"), at an aggregate purchase price as set forth in
subscription (b) herein.
(b) Payment. The Purchase Price for the Buyer's portion of the
Debentures shall be One Million United States Dollars (U.S. $1,000,000) (the
"Purchase Price"), which shall be payable at each closing pursuant to paragraph
C herein by delivering immediately available funds in United States Dollars by
wire transfer to the designated depository ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq. as Escrow
Agent ("Escrow Agent") for closing by delivery of securities versus payment.
(c) Closing. Subject to the satisfaction of the conditions set
forth in Sections 7 and 8 hereof, the closing of the transactions contemplated
by this Agreement shall occur from time to time in denominations of not less
than $50,000 but in any event on or before October 20, 1996, or such earlier or
later date as is mutually agreed to in writing by Buyer and Seller.
2. Buyer Representations and Covenants; Access to Information.
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Offshore Transaction. In connection with the purchase and sale of
the Debentures, Buyer represents and warrants to, and covenants and agrees with
Seller as follows:
(i) Buyer is not a natural person and is not
organized under the laws of any jurisdiction within the United
States, was not formed by a U.S. Person (as defined in Section
902(o) of Regulation S) for the purpose of investing in Regulation
S securities and is not otherwise a U.S. Person. Buyer is not, and
on the closing date will not be, an affiliate of Seller;
(ii) At the time the buy order was originated, Buyer
was outside the United States and is outside of the United States
as of the date of the execution and delivery of this Agreement;
(iii) No offer to purchase the Debentures or the
common stock of Seller issuable upon conversion of the Debentures
(collectively, the "Securities"), was made by Buyer in the United
States;
(iv) Buyer is purchasing the Securities for its own
account and Buyer is qualified to purchase the Securities under the
laws of its jurisdiction of residence, and the offer and sale of
the Securities will not violate the securities or other laws of
such jurisdiction.
(v) All offers and sales of any of the Securities by
Buyer prior to the end of the Restricted Period (as hereinafter
defined) shall be made in compliance with any applicable securities
laws of any applicable jurisdiction and in accordance with Rule 903
and 904, as applicable, of Regulation S or pursuant to registration
of securities under the 1933 Act or pursuant to an exemption from
registration. In any case, none of the Securities have been and
will be offered or sold by Buyer to, or for the account or benefit
of, a U.S. Person or within the United States until after the end
of the forty (40) day period commencing on the later of (x) the
date of closing of the offering of the Securities or (y) the date
of the first offer of the Securities to persons other than
distributors (the "Restricted Period"), as certified by Buyer to
Seller, and thereafter only pursuant to a Registration Statement or
an applicable exemption therefrom;
(vi) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Buyer with a
purchaser located in the United States or a purchaser which is a
U.S. Person, and (b) are not and will not be part of a plan or
scheme by Buyer, to evade the registration provisions of the 1933
Act;
(vii) Buyer understands that the Securities are not
registered under the 1933 Act and are being offered and sold to it
in reliance on specific exclusions from the registration
requirements of Federal and State securities laws, and that Seller
is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of Buyer
set forth herein in order to determine the applicability of such
exclusions and the suitability of Buyer and any purchaser from
Buyer to acquire the Securities;
(viii) Buyer shall take all reasonable steps to ensure
its compliance with Regulation S and shall promptly send to each
purchaser who acts as a distributor, dealer or a person receiving a
selling concession, fee or other remuneration in respect of any of
the Securities, who purchases prior to the expiration of the
Restricted Period referred to in subparagraph (v) above, a
confirmation or other notice to the purchaser stating that the
purchaser is subject to the same restrictions on offers and sales
as Buyer pursuant to Section 901(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted and shall not conduct
any "directed selling efforts" as that term is defined in Rule
902(b) of Regulation S; nor has Buyer conducted any general
solicitation relating to the offer and sale of any of the
Securities in the United States or elsewhere;
(x) This Agreement has been duly authorized, validly
executed and delivered on behalf of Buyer and is a valid and
binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
(xi) The execution and delivery of this Agreement and
the consummation of the purchase of the Securities, and the
transactions contemplated by this Agreement do not and will not
conflict with or result in a breach by Buyer of any of the terms or
provisions of, or constitute a default under, the articles of
incorporation or by-laws (or similar constitutive documents) of
Buyer or any indenture, mortgage, deed of trust, or other material
agreement or instrument to which Buyer is a party or by which it or
any of its properties or assets are bound, or any existing
applicable law, rule or regulation of the United States or any
State thereof or any applicable decree, judgment or order of any
Federal or State court, Federal or State regulatory body,
administrative agency or other United States governmental body
having jurisdiction over Buyer or any of its properties or assets;
(xii) All invitations, offers and sales of or in
respect of, any of the Securities, by Buyer and any distribution by
Buyer of any documents relating to any offer by it of any of the
Securities will be in compliance with applicable laws and
regulations and will be made in such a manner that no prospectus
need be filed and no other filing need be made by Seller with any
regulatory authority or stock exchange in any country or any
political sub-division of any country;
(xiii) Buyer will not make any offer or sale of the
Securities by any means which would not comply with the laws and
regulations of the territory in which such offer or sale takes
place or to which such offer or sale is subject or which would in
connection with any such offer or sale impose upon Seller any
obligation to satisfy any public filing or registration requirement
or provide or publish any information of any kind whatsoever or
otherwise undertake or become obligated to do any act; and
(xiv) Neither the Buyer nor any of its affiliates has
entered, has the intention of entering, or will during the
Restricted Period enter into any put option, short position or
other similar instrument or position with respect to any of the
Securities or securities of the same class as the Securities.
(xv) The Buyer (or others for whom it is contracting
hereunder) has been advised to consult its own legal and tax
advisors with respect to applicable resale restrictions and
applicable tax considerations and it (or others for whom it is
contracting hereunder) is solely responsible (and the Seller is not
in any way responsible) for compliance with applicable resale
restrictions and applicable tax legislation.
(xvi) No Government Recommendation or Approval. Buyer
understands that no Federal or State or foreign government agency
has passed on or made any recommendation or endorsement of the
Securities.
(xvii) Current Public Information. Buyer acknowledges
that it and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of
Seller and all materials relating to the offer and sale of the
Securities, in each case which have been requested by Buyer. Buyer
further acknowledges that it and its advisors, if any, have
received complete and satisfactory answers to such inquiries.
(xviii) Buyer's Sophistication. Buyer acknowledges
that the purchase of the Securities involves a high degree of risk,
including the total loss of Buyer's investment. Buyer has such
knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of purchasing the
Securities.
(xix) Tax Status. Buyer is not a "10-percent
Shareholder" (as defined in Section 871(h)(3)(B) of the U.S.
Internal Revenue Code) of Seller.
3. Seller Representations and Covenants.
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(a) Reporting Company Status. Seller is a "Reporting Issuer" as
defined by Rule 902 of Regulation S. Seller has registered its Common Stock,
no par value per share (the "Common Stock"), pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Common Stock is listed and trades on NASDAQ. Seller has filed all material
required to be filed pursuant to all reporting obligations under either Section
13(a) or 15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Securities (or for such shorter
period that Seller has been required to file such material).
(b) Current Public Information. Seller has furnished Buyer with
copies of its most recent reports, as amended, filed under the Exchange Act
referred to in Section 3(a) above, and such other publicly available documents
as requested by Buyer.
(c) Offshore Transaction. Seller has not offered any of the
Securities to any person in the United States, any identifiable groups of U.S.
citizens abroad, or to any U.S. Person, as such terms are used in Regulation S.
(i) At the time the buy order was originated, Seller
and/or its agents reasonably believe the Buyer was outside of the
United States and was not a U.S. person, based on the
representations of Buyer.
(ii) Seller and/or its agents reasonably believe that the
transaction has not been pre-arranged with a buyer in the United
States, based on the representations of Buyer.
(iii) No offer to buy or sell the Securities was or will
be made by Seller to any person in the United States.
(iv) The sale of the Securities by Seller pursuant to
this Agreement will be made in accordance with the provisions and
requirements of Regulation S provided that the representations and
warranties of Buyer in Section 2(a) hereof are true and correct.
(v) The transactions contemplated by this Agreement (a)
have not been and will not be pre-arranged by Seller with a
purchaser located in the United States or a purchaser which is a
U.S. Person, and (b) are not and will not be a part of a plan or
scheme by Seller to evade the registration provisions of the 1933
Act.
(d) No Directed Selling Efforts. In regard to this transaction,
Seller has not conducted any "directed selling efforts" as that term is defined
in Rule 902 of Regulation S nor has Seller conducted any general solicitation
relating to the offer and sale of any of the Securities in the United States or
elsewhere.
(e) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid and non-assessable. The Common
Stock issuable upon conversion of the Debenture has been duly and validly
reserved for issance and, upon issuance in accordance with the terms of the
Debentures, shall be duly and validly issued, fully paid, and non-assessable
and will not subject the holders thereof, if such persons are non-U.S. persons,
to personal liability by reason of being such holders. There are no pre-
emptive rights of any shareholder of Seller.
(f) Subscription Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(g) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement do not and will not conflict with
or result in a breach by Seller of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or by-laws of Seller,
or any indenture, mortgage, deed of trust, or other material agreement or
instrument to which Seller is a party or by which it or any of its properties
or assets are bound, or any existing applicable law, rule or regulation of the
United States or any State thereof or any applicable decree, judgment or order
of any Federal or State court, Federal or State regulatory body, administrative
agency or other United States governmental body having jurisdiction over Seller
or any of its properties or assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any governmental body which is legally required for the
issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by this
Agreement.
4. Exemption; Reliance on Representations. Buyer understands that the
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offer and sale of the Securities are not being registered under the 1933 Act.
Seller and Buyer are relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S.
5. Transfer Agent Instructions.
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(a) Debentures. Upon the conversion of the Debentures, the
holder thereof shall submit such Debenture with a notice of conversion to the
Seller and the Seller shall instruct Seller's transfer agent to issue one or
more Certificates representing that number of share of Common Stock into which
the Debenture or Debentures are convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller or its
designees shall act as Debenture Registrar and shall maintain an appropriate
ledger containing the necessary information with respect to each Debenture.
(c) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debenture by a person who is a non-U.S. Person, Seller
shall instruct Seller's transfer agent to issue Stock Certificates without
restrictive legend in the name of Buyer (or its nominee (being a non-U.S.
Person) or such non-U.S. Persons as may be designated by Buyer prior to the
closing) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. Seller warrants that no instructions other than these instructions
and instructions to impose a "stop transfer" instruction with respect to the
certificates until the end of the Restricted Period have been given or will be
given to the transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Seller. Nothing in this Section 5,
however, shall affect in any way Buyer's or such nominee's obligations and
agreements to comply with all applicable securities laws upon resale of the
Securities.
6. Registration. If upon conversion of Debentures effected by the
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Buyer pursuant to the terms of this Agreement the Company fails to issue
certificates for shares of Common Stock issuable upon such conversion (the
"Underlying Shares") to the Buyer bearing no restrictive legend for any reason
other than the Company's reasonable good faith belief that the representations
and warranties made by the Buyer in this Agreement or the Notice of Conversion
were untrue when made, or if the restricted period under Regulation S is
extended, then the Company shall be required, at the request of the Buyer and
at the Company's expense, to effect the registration of the Underlying Shares
issuable upon conversion of the Debentures under the Act and relevant Blue Sky
laws as promptly as is practicable. The Company and the Buyer shall cooperate
in good faith in connection with the furnishing of information required for
such registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. The Company shall
file a registration statement within 45 days of Buyer's demand therefor and
shall use its best efforts to cause such registration statement to become
effective as soon as practicable thereafter. Such best efforts shall include,
but not be limited to, promptly responding to all comments received from the
staff of the Securities and Exchange Commission, providing Buyer's counsel with
a contemporaneous copy of all written communications from and to the staff of
the Securities and Exchange Commission with respect to such registration
statement and promptly preparing and filing amendments to such registration
statement which are responsive to the comments received from the staff of the
Securities and Exchange Commission. Once declared effective by the Securities
and Exchange Commission, the Company shall cause such registration statement to
remain effective until the earlier of (i) the sale by the Buyer of all
Underlying Shares registered or (ii) 120 days after the effective date of such
registration statement. The foregoing shall not in any way limit Buyer's
rights in connection with the Common Stock pursuant to Regulation S.
7. Delivery Instructions. The Debentures being purchased hereunder
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shall be delivered to the Buyer at such time and place as shall be mutually
agreed by Seller and Buyer.
8. Conditions to Seller's Obligation To Sell. Seller's obligation to
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sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Buyer of this Agreement as
evidenced by execution of this Agreement by Buyer.
(b) Delivery into the closing depository of good funds by Buyer
as payment in full of the purchase price of the Debentures.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation
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to purchase the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as
evidenced by execution of this Agreement by the duly authorized officer of
Seller.
(b) Delivery of the Debentures as described herein.
10. Offering Materials. All offering materials and documents used in
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connection with offers and sales of the Securities prior to the expiration of
the Restricted Period referred to in Section 2(v) hereof shall include
statements to the effect that the Securities have not been registered under the
1933 Act or applicable state securities laws, and that neither Buyer, nor any
direct or indirect purchaser of the Securities from Buyer, may directly or
indirectly offer or sell the Securities in the United States or to U.S. Persons
(other than distributors) unless that Securities are registered under the 1933
Act any applicable state securities laws, or any exemption from the
registration requirements of the 1933 Act or such state securities laws is
available. Such statements shall appear (1) on the cover of any prospectus or
offering circular used in connection with the offer or sale of the Securities,
(2) in the underwriting section of any prospectus or offering circular used in
connection with the offer or sale of the Securities, and (3) in any
advertisement made or issued by Seller, Buyer, any other distributor, any of
their respective affiliates, or any person acting on behalf of any of the
foregoing.
11. No Shareholder Approval. Seller hereby agrees that from the
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Closing Date until the issuance of Common Stock upon the conversion of the
Debentures, Seller will not take any action which would require Seller to seek
shareholder approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the NASDAQ
Stock Market, Inc.) as a result of the issuance of the Securities hereunder.
12. Miscellaneous.
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(a) Except as specifically referenced herein, this Agreement
constitutes the entire contract between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations
or covenants except as specifically set forth herein. Any previous agreement
among the parties related to the transactions described herein is superseded
hereby. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
hereto. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor, and is not the agent of
Seller. Buyer is not authorized to bind Seller, or to make any representations
or warranties on behalf of Seller.
(c) Seller makes no representations or warranty with respect to
Seller, its finances, assets, business prospects or otherwise. Buyer will
advise each purchaser, if any, and potential purchaser of the Securities, of
the foregoing sentence, and that such purchaser is relying on its own
investigation with respect to all such matters, and that such purchaser will be
given access to any and all documents and Seller personnel as it may reasonably
request for such investigation.
(d) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the transactions
contemplated by this Agreement.
(e) This Agreement shall be construed in accordance with the
laws of California and shall be binding upon the successors and assigns of each
party hereto. This Agreement may be executed in counterparts, and the
facsimile transmission of an executed counterpart to this Agreement shall be
effective as an original.
(f) Buyer agrees to indemnify and hold Seller harmless from any
and all claims, damages and liabilities arising from Buyer's breach of its
representations and/or covenants set forth herein.
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IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.
Official Signatory of Seller:
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Chantal Pharmaceutical Corporation
By:
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Title:
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Official Signatory of Buyer:
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By:
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Title:
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Address of Buyer: